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Implications of the Abandoned Tesla Deal

The latest news in the Tesla Inc (Nasdaq: TSLA) roller coaster came late Friday when CEO Elon Musk announced he is pulling the plug on his controversial proposal to take Tesla private. Analysts say the failed go-private deal may continue to have an impact on TSLA stock in the quarters ahead.

In a blog post on Friday, Musk said he has decided to abandon a potential deal to take Tesla private at $420 per share after consultations with Goldman Sachs and Morgan Stanley revealed that a majority of Tesla shareholders oppose the deal.

“Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was ‘please don’t do this,’” Musk wrote.

Musk received backlash from analysts and investors after tweeting that he had “funding secured” to take Tesla private on Aug. 7. But the deal never emerged.

Tesla and its investors will now once again focus on Musk’s promises that Tesla will be profitable and cash-flow positive for the first time in the third quarter. Musk has repeatedly missed Model 3 production targets over the past year but has been adamant that Tesla will demonstrate it does not need to raise additional capital in 2018.

Jefferies analyst Philippe Houchois says Musk needs to raise more capital before the market begins to significantly devalue Tesla stock. However, he says there may be a silver lining to the privatization debacle.

“We wonder if the ‘going private’ tweet has effectively put Tesla in play and may lead to additional discussions with other investors, mainly corporates, that value Tesla’s vision and can help bridge gaps in growth and execution skills,” Houchois says.

Bank of America analyst John Murphy says investors will see more fallout from the abandoned TSLA deal.

“In particular, it appears that the SEC investigation is still outstanding, while Tesla is also facing class-action lawsuits over the initial announcement and subsequent events,” Murphy says.

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